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Truer unemployment rate drops to 16.5%

Okay, let's start unpacking today's January unemployment data.

As you saw this morning, the official U.S. unemployment rate in January dropped to 9.7 percent from 10 percent in December. The White House called this an optimistic move and, on paper, it is. But the decline was more of a function of the data than of the actual economy.

As happened in July and as happened in November, when the rate dropped, it did so because the overall labor pool shrank. That happened because more people stopped being counted as officially unemployed because they a) were working part-time jobs or b) had given up looking for work.

Indeed, in January, payrolls actually shrank by 20,000 when forecasters expected them to grow by 5,000.

The monthly unemployment numbers, from the Labor Department's Bureau of Labor Statistics, are made up of a household survey and a payroll survey. The household survey is a monthly rotating phone survey of 50,000 homes. The payroll survey asks employers what their situation is.

The reports were conflicting. The household number was more optimistic than the payroll number, so that's why this month is a tough one to use to gauge the real employment picture in the U.S.

Moving on.

As I like to do each month, I take a look at the truer measure of unemployment, which includes everyone who should be working full time but is not. This group is mostly made up of people working part time who'd rather have full-time jobs and the out-of-work who've grown so discouraged, they've given up looking for work.

This rate is always much higher than the official number and in January, came in at 16.5 percent, down from 17.3 percent in December. That number peaked at 17.4 percent in October.

The number of part-time workers fell from 9.2 million in December to 8.3 million in January. That could indicate part-time workers are getting full-time jobs, but that possibility is dimmed by the overall January payroll reduction.

At the same time, the number of discouraged workers has increased from 734,000 in January 2009 to 1.1 million in January of this year, and that's a problem. It means more people have checked out of the labor force.

Overall, about 2.5 million people were "marginally attached to the labor force" in January, which is up 409,000 from January last year. These are people who are not in the labor force, are available for work and have looked for a job sometime in the past year.

What should be your takeaway from this morning's unemployment report? It's not optimistic, but it doesn't look like the situation is getting worse, as it was one year ago. Unemployment will continue to grind sideways, hovering between 9.5 and 10 percent, is my guess, throughout the rest of this year. And the economy will suffer all the side effects attendant with that malady.